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December 05, 2011

The situation in India today closely resembles the situation in the United States during the early twentieth century. Rampant corruption and an inefficient and collusive bureaucracy were finally reined in by popular pressurehttp://www.tribuneindia.com/2011/20111204/edit.htm#1

Rakshit Pandey

GLOBALLY, outrage and the ensuing chaos, as witnessed in India in recent months, have often been the harbinger of order for many countries. One such country that has been there and done that is the US and it has important lessons for us. Recent events notwithstanding, the US has, for the greater part of this century epitomised success- a country where the government delivers and true talent, innovation and entrepreneurship usually get rewarded.

Striking parallels

And yet it wasn’t always so. The crucible of such efficiency lay in circumstances, in the early 1900’s, which were remarkably similar to those that the Indian polity finds itself in now. Widespread corruption, lackadaisical governance and politician-businessmen nexus was commonplace.

Just as in India, there were allegations that the government often rewarded business houses with unfair advantages and contracts. There were business tycoons who, it was alleged, routinely bought seats in the House of Representatives. They manipulated legislatively determined pricing of critical national commodities (such as Gold and rail freight- the historical equivalent of telecom spectrum) in return for favors for the President’s family members.

In fact, some of the best known American universities were sponsored by individuals who were tainted with allegations of political graft. Noted political scientist, Fred W Riggs, might as well have been speaking of India when he described this state as a ‘Prismatic’ society-where prices could be determined by the reciprocal power of the trading partners and not due to the more impersonal relationship between supply and demand. Also, political control could be grabbed through coercion, violence, money, or charismatic rule, but not always through consistent application of constitutional law. Just as the recent scandals have led investors to doubt the Indian growth story, the American crises of 1894 and 1907 led foreign investors to doubt if a corrupt US governance system would ever get its act together. American democracy took time to mature and at times seemed just as inept and chaotic as the Indian governance appears today.

The turn-around

Given the striking parallels in the initial conditions, it is natural to think of the key causes for the American turnaround and the possible path that India might adopt going forward.

In the late 19th century, the US banking system was dependant on political patronage to receive licenses - not unlike the licensing raj that existed in India. The Regency Democratic Party held monopoly over the licensing regimen and used it extensively to fill party coffers.

However, reform emerged with the opposing Whig party’s desire to restrict the Democrat’s monopoly over these rents of patronage. Their intention behind deregulating the banking sector was more to end their rival party’s monopoly on bribes than to act against corruption itself.

Similarly, it was a rogue splinter group of the Democratic Party, the Equal Rights Party, composed of traders and entrepreneurs, which rose against its leadership. They did so only when it became apparent to them that a heavily regulated banking sector threatened their own economic interests. Personal gain and political brinkmanship played a bigger role in prompting reform than any sanctimonious regulation ever could.

In India, we have already seen some of this happen with the opposition having to clean its own tainted stable to maintain pressure on the government. Also, new interest groups, such as those led by Anna Hazare and Baba Ramdev, have risen to take advantage of the ideological gap.

Popular angst

Ultimately, in a functioning democracy, popular angst usually creates enough political space for new political parties (and old parties with new found ideologies) to cash in on emerging public opinion. Reform doesn’t always need legendary leaders with far reaching vision, but invariably needs a critical mass of popular angst. And a hitherto stable equilibrium of mutually beneficial silence unravels into a game or a jostle for the newly emerging popular mandate- ultimately leading to sustained reform.

Secondly, it was the emergence of a truly independent judiciary and civil service that bucked the existing trend. Earlier in its history, the US had followed a system of political patronage for government jobs. Thousands of appointments were made purely as political favour to those who demonstrated loyalty to the ruling party. Even judicial appointments were heavily influenced by the choices that the ruling party made.

However, growing inefficiency and public disgust with corruption finally forced congressional action to create a separate civil service cadre. These were purely expeditious political decisions driven by short term factors. The decision makers never truly intended them to have the far reaching consequences that they did.

In India, we are already witnessing a resurgent judiciary, unafraid to test the government’s conviction in going after the corrupt. However, actions of the bureaucracy have so far remained muted. Indeed, historically we have seen it regress from being the steel framework supporting India’s democracy into a favor seeking extension of the political machinery. Provided these institutions can remain independent in thought and action, it is entirely conceivable that in India too, these institutions, along with the media, will raise the cost of corruption to a level where it outweighs the marginal benefits of being corrupt.

Crucially, in the US, neither of these reforms was borne out of an explicit vision or conviction to root out corruption. And yet these reforms emerged because the system, for all its ills, was one that allowed popular mandate to fully express itself. Subsequently, the invisible hand of selfish political survival guided the various players into reactions that inadvertently led to sustainable change and reform.

The current chaos engulfing Indian governance and policy making, seems utterly incapacitating. However, it would bear well to remember that it is part of a broader narrative, a journey that culminates in the emergence of hugely successful societies.

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